Obamacare to Force Ballooning State Taxes

The Obama healthcare initiative will be the biggest unfunded federal mandate on the states in history.

It will force dozens of states, particularly in the South, to abandon their low-tax ways and to move toward dramatically higher rates of taxation. It might even force Florida and Texas to impose an income tax!

In the Senate version of the bill, states must expand their Medicaid eligibility to cover everyone with an income that is 133 percent of the poverty level.

The House bill brings it up to 150 percent. But many states have kept their state taxes low precisely by so limiting eligibility for Medicaid that it essentially is only for seniors needing long-term care and not for poor younger people who require acute care.

For example, Texas covers only those who make 27 percent of the poverty level or less. Florida covers only 55 percent. Pennsylvania covers only 36 percent. Arkansas covers only 17 percent. North Dakota covers only 62 percent. Nebraska covers only 58 percent. Louisiana covers only 26 percent. Indiana covers only 26 percent.

The revenue required to bring these states up to the 133 percent level in the Senate bill or the 150 percent level in the House would be enormous. Even California covers only up to 106 percent of the poverty level.

All states except for Connecticut, Illinois, Maine, Massachusetts, Minnesota, New Jersey, New York, Rhode Island, Tennessee, Vermont, and Wisconsin (plus the District of Columbia) will have to raise their eligibility for Medicaid under the Senate healthcare bill. And they will have to pay for part of the cost. Under the House bill, with a higher Medicaid eligibility standard, Massachusetts and Vermont also would have to pay more.

The Medicaid expansion provisions of the Senate bill are complex. In the first year of the program (2013), states must enroll anyone who earns less than 133 percent of the poverty level in their programs. For a family of four, the national average poverty level in 2009 is $22,000 a year. So any family that size that makes less than $29,000 would be eligible for Medicaid.

For the first three years of the program (2013-2015) the federal government would pay for all of the costs of the Medicaid expansion. But starting in the fourth year of operation, 2016, states would be obliged to pay 10 percent of the extra cost.

Although Obama often has said he won't raise taxes on the middle class, his healthcare legislation will require the governors to do so.

Particularly in those states with Democratic governors, it is easy to see how the backlash against these new taxes could alter state politics at fundamental levels.

Followings are the rough calculations of the increased costs each affected state will have to bear when it has to pick up 10 percent of the cost. No official data has been generated on these figures. These calculations are based on guidelines I obtained from the Republican staff of the Senate Finance Committee.

Alaska — $39 million

Arizona — $217 million

Arkansas — $402 million

California — $1,428 million

Colorado — $163 million

Delaware — $35 million

Florida — $909 million

Georgia — $495 million

Hawaii — $41 million

Idaho — $97 million

Iowa — $77 million

Indiana — $586 million

Kansas — $186 million

Kentucky — $199 million

Louisiana — $432 million

Maryland — $194 million

Michigan — $570 million

Mississippi — $136 million

Missouri — $836 million

Montana — $29 million

Nebraska — $81 million

Nevada — $54 million

New Hampshire — $59 million

New Mexico — $102 million

North Carolina — $599 million

North Dakota — $14 million

Ohio — $399 million

Oklahoma — $190 million

Oregon — $231 million

Pennsylvania — $1,490 million

South Carolina — $122 million

South Dakota — $33 million

Texas — $2,749 million

Utah — $58 million

Virginia — $601 million

Washington — $311 million

West Virginia — $132 million

Wyoming — $25 million

These estimates were obtained by calculating the increase in Medicaid spending in each state to bring it up to the 133 percent level specified in the Senate bill. Then I applied the percentage of Medicaid spending in each state on acute care (mainly for the poor) as opposed to long-term care (mainly for the elderly). Finally, I took 10 percent of the increased state share of spending and listed it in the table above.